| Mon 2 Oct 2006, 9:06 | | UK group leads R9,1bn Alex Forbes buyout bid |
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UK group leads R9,1bn Alex Forbes buyout bid
Rob Rose
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Chief Reporter
A CONSORTIUM of private equity firms led by the UKÆs Actis and including Ethos and two Canadian fund managers is believed to be in the final stages of preparing a R9,1bn bid to buy Alexander Forbes, and delist the firm.
Not only would this be the largest private equity deal yet in SA, it would also remove Alexander Forbes from the glare of publicity around questionable practices conducted by the broking company in the past.
It is understood that the consortium, which also includes CanadaÆs second-largest fund manager, the Ontario Teachers Pension Plan, and Caisse de Depot et Placement du Quebec, submitted a binding offer to Alexander Forbes last week.
VenFin, which owns 25% of Alexander Forbes, is believed to have provided an irrevocable undertaking to accept the offer, while Alexander ForbesÆ independent directors are said to support the offer.
Although Alexander Forbes is trading under a cautionary and confirmed last month that it was in discussions with a number of private equity companies, an announcement is expected this week giving further details of the parties involved.
Insiders close to the deal said the consortium was considering an offer of R18,59 a share ù a 16% premium to the companyÆs JSE share price of R16 on Friday, and a 20% premium to the average stock price over the past month.
One source close to the matter said negotiations were ôfairly advancedö, and that ôhaving management on your side as well as a big block of shareholdersö was an important factor which the consortium considered, before doing a due diligence report on the broking company.
Yesterday, Alexander Forbes refused to confirm the offer or the names of the consortium parties. But various details of the offer have been confirmed by three other sources, who declined to speak on the record.
Although financing information remains sketchy, it is thought that the new partners would inject R3bn in equity, US banking group JPMorgan would underwrite the debt acquisition to the tune of R5bn, while another R1bn would come from the recently announced sale of Alexander ForbesÆ international risk services business to a US insurance brokerage.
An analyst, who declined to be named, said an offer of about R18,50 a share was likely to be considered ôa reasonable priceö by the market.
However, many issues remain to be addressed at Alexander Forbes, which recently paid R500m to settle its liability for ôbulkingö ù a practice whereby the company bulked the bank accounts of the pension funds it administers and then negotiated a higher rate of interest.
Without telling the individual clients, Alexander Forbes then also took a cut of the extra interest earned on those accounts. A 20-page review by Ernst & Young and law firm Deneys Reitz, released last month, revealed how Alexander Forbes had broken the law and flouted proper governance in some of its businesses.
This report showed that five of 84 business practices reviewed needed to be improved to meet ôlegal requirementsö.
CEO Peter Moyo, who stepped into the shoes of former CEO Rael Gordon in July, said it remained unclear whether the former management would be held responsible.
As a consequence of having to make provisions to repay clients for profits it took from bulking, Alexander Forbes reported an 88% drop in profit for the year to March.
